Top Mistakes to Avoid When Filing Your Tax Return and How Technology Can Help

Common errors can lead to penalties and missed refunds. Platforms like Basetax use AI to automate bookkeeping, prevent errors, and file directly with HMRC, turning a complex process into a simple, error-free task.

Filing your tax return can feel a bit like navigating a minefield; one tiny misstep and you might face penalties, delays, or worse. And it’s more common than you might think. For example, in the UK, around 1.1 million people missed the self‑assessment deadline for the 2023‑24 tax year, despite more than 11.5 million returns being filed on time. 

Meanwhile, the overall tax gap (the difference between the tax that should be paid and what is paid) is estimated at about £35.8 billion, which is approximately 4.8% of all tax liabilities. Also, data indicate that around 36% of self‑assessment taxpayers under‑report tax due, with that figure rising to nearly 60% among the self‑employed. 

With figures like that, it’s clear that errors in tax returns aren’t just rare anomalies, they’re widespread. The good news? The right technology can help you steer clear of the common pitfalls, make filing smoother and less stressful, and keep you on the right side of the rules. 

Top mistakes to avoid when filing your tax return

Filing a tax return isn’t something to take lightly. Even the smallest mistake can result in delays, penalties, or an audit. Let’s take a closer look at some of the most common mistakes and how businesses can avoid them.

1. Failing to keep accurate records

One of the most basic yet frequently made mistakes is poor record-keeping. Whether someone is self-employed, a freelancer, or a small business owner, keeping accurate and organised records is crucial. Some believe they can get by with a few receipts here and there or rely on memory, but this can lead to errors when it comes time to file.

• The mistake: Not keeping detailed records of all income, expenses, and business-related transactions can result in missed deductions, overpayment on taxes, or the possibility of an audit.
• The fix: It’s important to track all income and expenses throughout the year. Many modern solutions, such as accounting software, automate this process, making it easier to stay on top of financial records without hours of manual work.

How Basetax.ai helps: Basetax.ai helps businesses automate bookkeeping by tracking transactions in real-time and categorising expenses. This reduces the chance of errors and ensures everything is accurately recorded for tax filing.

2. Missing out on tax deductions

Reducing tax liability often involves claiming every eligible deduction, but many business owners miss out on valuable deductions simply because they aren’t aware of what qualifies.

• The mistake: Missing out on deductions such as office supplies, business-related travel, or home office costs means paying more tax than necessary. These expenses can reduce taxable income and ultimately lower tax bills.
• The fix: It’s essential to understand which expenses are deductible. This could include anything from travel costs to professional fees and even the cost of a home office.

How Basetax.ai Helps: Basetax.ai automatically categorises and tracks expenses, ensuring that all deductible business expenses are recorded. The platform ensures that no deduction goes unnoticed and maximises potential savings.

3. Incorrectly filing personal and business expenses together

For sole traders or small business owners, mixing personal and business finances is a significant mistake. Not separating personal and business expenses can complicate tax filing, making it harder to determine what can and cannot be deducted.

• The mistake: Blurring the lines between personal and business expenses increases the risk of making mistakes on the tax return. Business expenses should be business-related, and personal expenses should remain separate.
• The fix: It’s crucial to keep personal and business finances distinct by opening separate business bank accounts and using business credit cards. This makes it easier to track business-related expenses and ensures proper tax filings.

How Basetax.ai Helps: With Basetax.ai, transactions are automatically separated into personal and business categories, reducing the risk of mixing the two and ensuring that only legitimate business expenses are claimed on the tax return.

4. Overlooking tax deadlines

Missing tax deadlines is a costly mistake, and one that can result in significant penalties. Many businesses fail to keep track of important filing and payment deadlines, leading to late fees and interest charges from HMRC.

• The mistake: Failing to file on time or missing a payment deadline can result in penalties, with the initial penalty for late filing being £100, and further fines accruing the longer it is left.
• The fix: Setting reminders for tax deadlines is essential. Business owners should make it a habit to know the dates in advance and give themselves plenty of time to gather the necessary documents and file before the due date.

How Basetax.ai Helps: Basetax.ai sends automatic reminders for upcoming deadlines, ensuring that businesses never miss a filing date. This feature ensures that tax returns are filed on time, avoiding late penalties.

5. Errors in income reporting

For self-employed individuals and small business owners, accurately reporting income can sometimes be trickier than it seems. Some individuals may underreport income, either intentionally or unintentionally, leading to discrepancies in their tax filings.

• The mistake: Not reporting all sources of income or failing to include additional earnings can lead to tax penalties and potential audits. It’s crucial to include all earnings, no matter how small, to ensure compliance.
• The fix: It’s important to track every source of income, whether it comes from freelance work, side gigs, or multiple business activities.

How Basetax.ai helps: Basetax.ai automatically tracks all sources of income and compiles detailed reports, making it easy to ensure that everything is accounted for and nothing is left out.

6. Failing to account for VAT

For businesses that are VAT registered, failing to properly account for VAT can lead to penalties and confusion when filing a tax return. Many small businesses struggle to keep track of VAT on purchases and sales.

• The mistake: Incorrectly charging or failing to properly account for VAT can result in underpayment or overpayment, both of which can lead to fines from HMRC.
• The fix: Understanding VAT requirements and ensuring proper tracking of VAT paid and received is crucial for VAT-registered businesses.

How Basetax.ai helps: Basetax.ai makes VAT tracking seamless by automatically calculating and tracking VAT on transactions. The platform ensures businesses are always compliant with VAT regulations and simplifies the VAT filing process.

Final thoughts

Filing a tax return doesn’t have to be stressful, nor does it have to involve costly mistakes. By avoiding common pitfalls and embracing modern technology, businesses can streamline the process and reduce the risk of errors. With platforms like Basetax.ai, small businesses can automate their tax filing, ensure compliance, and maximise deductions, all while saving valuable time and resources.